In the last week, China-based stocks bounced sharply from last year’s lows. Alibaba (BABA) stood out the most. The widely followed e-commerce firm rallied on news that Charlie Munger increased his position.
Investors should not depend on one investor’s purchase to justify the buy. China’s property real estate market is de-leveraging. The Chinese Communist Party introduced three red lines to put an end to easy money flow. EverGrande is on the news almost daily because its bankruptcy will hurt the Country’s GDP.
China EverGrande is not a contagious crisis. The government planned for the firm to unwind. It needed to put an end to Chinese real estate investors speculating on property. President Xi said that houses are for living in, not for speculation. By lowering property prices, the CCP will improve home affordability. Over-worked people will not have to save as much to afford a home. This will alleviate the social pressures of working only to buy homes that are out of their reach.
In the near term, China’s GDP growth rate will lag. The zero-covid strategy will also continue disrupting output. Expect the government to minimize the damage of Evergrande’s crisis in the property sector and its economy. Once the firm is broken up, stronger firms will take their place.
